Durbin: Trim Fat on For-Profit College Subsidies

Despite substantial federal aid, most of these schools underperform and leave students in debt

Looking for ways to cut spending and end the fattest federal subsidy in Washington? Look no further than the for-profit college industry. To understand why for-profit schools have been such an embarrassing waste of money for the federal government and an educational disaster, just remember three numbers: 12, 25 and 47.

For-profit colleges educate only 12 percent of all college students in America.

Yet, a disproportionate 25 percent of all federal aid to education goes to for- profit colleges.

And a staggering 47 percent of all student loan defaults are among for-profit school students.

Every year we send $32 billion to for-profit colleges, making that “private sector” industry the most highly taxpayer-subsidized business in America. That’s enough to make for-profit colleges the ninth-largest agency in our government. In comparison, food stamps for 46 million Americans cost $74 billion in 2012.

With that kind of investment, the American taxpayers should expect a positive return.

Sadly, while some of these schools do a good job of educating students, much of this money is simply wasted. More and more students are ending up deep in debt with a useless degree or no degree at all while the college executives walk away with millions.

Most students take out loans to finance their education, but the students who attend for-profit colleges are far more likely to go into debt than students at public and private universities. Ninety-six percent of students at for-profit colleges take on debt to pay for their education —compared with 62 percent at public colleges and 72 percent at private nonprofit colleges — and their debt is substantially higher.

So how is it that an industry with a fat subsidy from our government and some of the poorest outcomes survives?

The for-profit college industry has friends in high places — it is one of the most politically connected industries in this country. Since 2007, the for-profit college industry has spent nearly $40 million lobbying against sensible regulations.

Thanks to that lobbying effort, Congress was persuaded to water down a rule limiting federal student aid to 85 percent of a school’s total revenue. Federal law now permits for-profit colleges to receive as much as 90 percent of total revenue from federal student aid programs such as Pell grants and student loans.

Not included in this calculation is funding from the GI Bill and the Department of Defense tuition assistance program. For-profit colleges take in 37 percent of all GI Bill funds and nearly 50 percent of all Department of Defense tuition assistance program funds. Between student assistance from the departments of Education, Defense and Veterans Affairs, some for-profit colleges operate with nearly 100 percent of their revenue from the federal government.

If Congress is serious about tackling wasteful spending, we should make two immediate changes that would limit this shameful subsidization of for-profit colleges.

First, all schools with student loan default rates at 15 percent or higher should be required to pay the government back a portion of the federal student aid funds they received. If schools choose to spend taxpayer dollars on advertising, marketing and executive compensation rather than education — such that their students are not graduating, finding work and paying back their loans — then those schools should be required to send a refund to federal taxpayers.